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UPDATE 1-Royal Mail's Christmas parcels hurt by labour unrest, warns of challenges

challenges@ (Recast; adds detail on outlook, turnaround plan)

LONDON, Feb 6 (Reuters) - UK's Royal Mail said on Thursday its outlook for the next fiscal year is "challenging" and the threat of a labour strike in late 2019 hurt parcel revenue growth during the Christmas period as customers opted to use other carriers.

Labour unrest has tripped up productivity at Royal Mail and along with the delay in its turnaround and ongoing economic uncertainties, the likelihood of its UK business slumping to a loss in 2020-21 has increased.

The company said its largest labour union is preparing another ballot for industrial action.

Britain's former postal monopoly said the outlook for next year was "challenging" as addressed letter volumes were not recovering as expected.

"Unless we are able to make significant progress in delivering our transformation plan, our ability to meet the year 3 targets of our Journey 2024 plan will be compromised," the company said.

Last May, it pledged to invest 1.8 billion pounds ($2.34 billion) in a five-year turnaround plan, to refashion Britain's former postal monopoly into an international parcel-led business as it attempts to position itself for a future dominated by online deliveries.

Royal Mail said it has started the transformation plan, having chosen the supplier for automation of its Warrington parcel hub and deploying a range of initiatives and trials, which were "held up for many months".

"We want to reach agreement with Communication Workers Union (CWU); but we cannot afford to delay this essential transformation any longer," said Chief Executive Officer Rico Back.

The company, which employs around 143,000 people in the UK, said it expects productivity improvement to be around 1.5% for the full year, against its 2% target.

Royal Mail said revenue for the nine months to Dec. 29 increased 3.7%, and confirmed its adjusted group operating profit for 2019-20 was expected to be 300 million-340 million pounds. ($1 = 0.7701 pounds) (Reporting by Yadarisa Shabong in Bengaluru and Paul Sandle in London; editing by Kate Holton, Bernard Orr)